The Supreme Court’s ruling on health care reform has and will continue to dominate headlines. Through our legislative contacts and lobbyists, PPAI has access to information, insight and analysis that you won’t see published anywhere else. Go beyond the latest headlines and learn more about how the ruling will impact your business with PPAI’s Washington Report:
SAFE BY A WHISKER
Who would think the future of health care reform would turn on the notion of a penalty not being a tax for the purpose of a statute but a tax for the purpose of constitutionality? But that is what it came down to.
The Patient Protection and Affordable Care Act (PPACA), starting in 2014, will impose a “penalty” on any individual not otherwise exempted or obtaining coverage from an employer, if the individual does not have health insurance with certain minimum benefits.
Noted the Supreme Court, “The ‘[s]hared responsibility payment,’ as the statute entitles it, is paid into the Treasury by ‘taxpayer[s]’ when they file their tax returns. It does not apply to individuals who do not pay federal income taxes because their household income is less than the filing threshold in the Internal Revenue Code. For taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents and joint filing status. The requirement to pay is found in the Internal Revenue Code and enforced by the IRS, which—as we previously explained—must assess and collect it ‘in the same manner as taxes.’ This process yields the essential feature of any tax: it produces at least some revenue for the Government.”
A majority of the Supreme Court thus concluded that when it comes to taxes, Congress has broader latitude in imposing taxes than it does on regulating commerce, and the individual mandate, when viewed as a tax for not having insurance rather than a requirement to purchase insurance, is constitutional.
To get to that point, the Court first actually rejected the notion that imposing the individual mandate was a permissible constitutional exercise of Congress’ ability to regulate commerce or an exercise of its necessary and proper clause. As the Court said, “The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Every day individuals do not do an infinite number of things…The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions. Any police power to regulate individuals as such, as opposed to their activities, remains vested in the States.”
However, the court went on to note that when a law might not be justified under one constitutional clause, the Court’s duty is to “save a statute” if there is another constitutional clause to justify it. Thus, the alternative constitutionally permissible “tax” theory prevailed.
(Along the way the Court had to address the Anti-Injunction Act which would have made the decision premature because it says a tax cannot be challenged until you have paid it. The Court said that the Anti-Injunction Act specifically used the term “tax.” The Court said that for statutory Anti-Injunction purposes, the word “penalty” in PPACA was not a “tax,” but for constitutional purposes, the analysis of what constitutes a tax is broader; hence, the above analysis of constitutionality could consider it a tax even though PPACA used the word “penalty.”)
To learn more and get detailed TAKEAWAYS: How The Healthcare Ruling Affects Your Business – PPAI Washington Report